| 14 September 2020
Very often, models of microfinance that have
worked in other nations need indigenizing or a complete overhauling before they
can be successfully applied in India. The concept of Self-Help Groups (SHGs) is
one such success story, which leans heavily on the close-knit fabric of Indian
society to ensure positive economic outcomes.
In what could be the next great step for
micro-enterprise progress in India, Muhammad Yunus, who is widely revered as
the father of micro-finance, recently suggested that micro-finance institution
(MFIs) in India should be allowed to accept deposits from the public.
At a pan-IIT Alumni Reach for India
Foundation (PARFI) online conclave on `Re-imagining - MSME & Livelihoods`,held
in July 2020, he observed that MFIs currently have to approach banks or other
large lending organisations for funds. This raises the cost of funds in the
hands of the end users as there are layers of intermediaries, including banks
or SIDBI/ NABARD, in between.
The Nobel Laureate suggested that MFIs should
be given special banking licences to accept small deposits which should be used
only for micro-lending.
In response, the Union Minister of Medium
Small and Micro Enterprises (MSME), Nitin Gadkari,asked the Nobel Prize awardee
and entrepreneur, Muhammad Yunus, to work with the NitiAayog to frame a
proposal that will make finance become more accessible to the poor. The
Minister agreed that a rural-centric lending policy is needed to help the poor
get access to funds to start their businesses. He acknowledged the need for a
separate policy for the poor, socially, economically and educationally
backward, who have skill and are talented but lack adequate capital to launch
The basis of Muhammad Yunus’ proposition is
that rural deposits should be used to fund the rural economy. So, rather than
channelling rural areas deposit to urban corporates or large infrastructure undertakings
and the like, MFIs should collect deposits from them and use these funds to lend
to those in the rural areas.
He underlined the added incentive that the role
of the government would be that of a mere facilitator in this flow of funds by
saying, “The government just needs to bring a change to the policy, nothing
more. Not a rupee is needed from the government to bring about the change in
the rural economy, if this is implemented.”
This proposal reflects the letter and spirit
of the Prime Minister’s Atmanirbhar mission, which calls for self-reliance as
the basis of sustainable progress in India. A closer look reveals that it is
not very different from the vision of Mahatma Gandhi for self-sufficiency in
rural India as the backbone for the overall advancement of the country.
With the Covid-19 pandemic disrupting the
economy, it has triggered a social transformation too. There has been an exodus
of migrant workers from urban and semi-urban areas to their villages. Even if these reverse migrants prefer to
remain within their hometowns, the lack of opportunities for income generation
would eventually force them to leave their homes and return to the cities.
Access to a robust financial ecosystem of
deposits and loans within their native places would enable them to explore
fresh entrepreneurial opportunities, which in turn would lead to more equitable
and sustainable development across the country.